Drive a business vehicle bargain whether owning or leasing a car

KEEPING company car costs down is vital for business owners, and there are several options available when it comes to owning or leasing.

NHADA LARKIN

News Corp Australia NetworkAugust 10, 20142:37pm

Penny Spencer, the managing director of Spencer Travel in Sydney, says her business leases five vehicles.Source:News Limited

KEEPING company car costs down is vital for business owners, and there are several options available when it comes to owning or leasing.

Experts say the decision depends on a business owner’s individual circumstances, and warn there are a few financial tricks and traps to understand..

“Getting value from your business vehicles can be complex and costly without the right support,” says Prosperity Advisers Group chief executive Allan McKeown.

“Managing vehicle depreciation, residual and maintenance risk, and keeping the whole-of-life cost and management of the vehicle under control can siphon valuable time and money away from your core business.”

McKeown says leasing with a vehicle management company can reduce much of this potential stress.

Some of the benefits include management of maintenance and repair costs, discounted rates on fuel, reduced administration time and competitive vehicle prices, he says.

However Paul Hockridge, a tax partner at Deloitte Private, says there are both advantages and disadvantages to leasing vehicles, and the deals on offer can differ markedly.

Lease arrangements can range from simple agreements to hire a vehicle for a set period through to arrangements that cover fuel, maintenance and repairs of the vehicles.

Often at the end of a leasing arrangement business owners will have the option to buy the vehicle outright at a reduced price — known as “residual”, but the finance company is under no obligation to sell the car to the business owner.

“However, if the vehicle is worth 40 per cent of the original cost but the lease residual is 50 per cent it means the business owner is up for the shortfall,” Hockridge says.

“That’s called a lease shortfall obligation. So when I’m entering into a finance lease there could be an upside, but there’s no guarantee I get to keep the upside; but there could be a downside and I’m certain I will wear the downside.”

Hockridge says finance companies negotiate with car dealers and suppliers of parts to get the best deals, so it is a good idea for business owners to shop around and negotiate when it comes to leasing business vehicles.

He says when it comes to deciding whether to lease or buy a business vehicle, the cheapest option will depend on the nature and size of the business and the deal that can be negotiated.

Another option is for employees to enter into salary sacrificing arrangements with their employer to lease a business vehicle — an option that can have an upside for both parties, Hockridge says.

“The most common fringe benefit provided by small and medium businesses in Australia is motor vehicles and commonly they are salary sacrificed.

“That means employees give up amount of salary to cover cost to employer of providing the car.”

Hockridge says where salary sacrificing is an option, employers should lease business vehicles and not buy them because the cost to the employer is transparent, as required under salary sacrificing arrangements.

Penny Spencer, the managing director of Spencer Travel, says her business leases five business vehicles.

“In the long term you pay out the lease — whether it’s three or five years — and then you can get a new car,” she says.

“From a financial point of view it’s better off for us to be leasing them rather than paying out that money all upfront (to buy).”